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FREQUENTLY ASKED QUESTIONS SWACHH BHARAT CESS (SBC)

Chapter VI (Section 119) of the Finance Act 2015 contains provisions for levy and collection of Swachh Bharat Cess (SBC). Now the Government has announced 15th November, 2015 as the date from which the provisions of Section 119 would come into effect (notification No.21/2015-Service Tax, dated 6th November, 2015 refers). Simultaneously, Government has also notified levy of Swachh Bharat Cess at the rate of 0.5% on all taxable services. Effectively, the rate of SBC would be 0.5% and new rate of service tax plus SBC would be 14.5%. As such SBC translates into a tax of 50 paisa only on every one hundred rupees worth of taxable services. The proceeds from this cess will be exclusively used for Swachh Bharat initiatives.

In this context, the relevant Chapter of the Finance Act, 2015 is reproduced below:-

“CHAPTER VI

SWACHH BHARAT CESS

119. (1) This
Chapter shall come into force on such date as the Central Government may, by
notification in the Official Gazette, appoint.

(2)There shall be
levied and collected in accordance with the provisions of this Chapter, a cess
to be called the Swachh Bharat Cess, as service tax on all or any of the
taxable services at the rate of two per cent. on the value of such services for
the purposes of financing and promoting Swachh Bharat initiatives or for any
other purpose relating thereto.

(3)The Swachh Bharat
Cess leviable under sub-section (2) shall be in addition to any cess or service
tax leviable on such taxable services under Chapter V of the Finance Act, 1994,
or under any other law for the time being in force.

(4)The proceeds of the
Swachh Bharat Cess levied under sub-section (2) shall first be credited to the
Consolidated Fund of India and the Central Government may, after due
appropriation made by Parliament by law in this behalf, utilise such sums of
money of the Swachh Bharat Cess for such purposes specified in sub-section (2),
as it may consider necessary.

(5)The provisions of
Chapter V of the Finance Act, 1994 and the rules made thereunder, including
those relating to refunds and exemptions from tax, interest and imposition of
penalty shall, as far as may be, apply in relation to the levy and collection
of the Swachh Bharat Cess on taxable services, as they apply in relation to the
levy and collection of tax on such taxable services under Chapter V of the
Finance Act, 1994 or the rules made thereunder, as the case may be.”

On this issue, Hon’ble FM in his
speech for Budget 2015-16 has stated as under:-

“10.The third is ‘Swachh Bharat’ which we have been able to transform into
amovement to regenerate India. I can
speak of, for example, the 50 lakh toilets already constructed
in 2014-15, and I can also assure the Members of this august House that we will
indeed attain the target of building six crore toilets. But, Madam, Swachh
Bharat is not only a programme of hygiene and cleanliness but, at a deeper
level, a programme for preventive health care, and building awareness.”

“123. ----It
is also proposed to have an enabling provision to levy Swachh Bharat Cess ata rate of 2% or less on all or certain
services if need arises. This Cess will be effective from a date to be
notified. Resources generated from this cess will be utilised for financing and
promoting initiatives towards Swachh Bharat.”

Q.1What is Swachh Bharat Cess (SBC)?

Ans. It isa Cess which shall be levied and collected in accordance with
the provisions ofChapter VI of the Finance Act, 2015,called Swachh Bharat
Cess, as service tax on all the taxable services at the rate of 0.5% of the
value of taxable service.

Q.2What is the date of implementation of SBC?

Ans. The Central Government has appointed 15thday of November, 2015 as the date
from whichprovisions of Swachh
Bharat Cess will come into effect (notification No.21/2015-Service Tax, dated 6th November, 2015 refers).

Q.3Whether SBC would be leviable on exempted services and
services in the negative

list?

Ans. Swachh Bharat Cess is not leviable on services which are
fully exempt from service tax orthose
covered under the negative list of services.

Q.4Why has SBC been imposed?

Ans. SBC has been imposed for the purposes offinancing and promoting Swachh Bharatinitiatives or for any other purpose relating thereto.

Q. 5 Where will the money
collected under SBC go?

Ans. Proceeds of the SBCwill be
credited to the Consolidated Fund of India,and the CentralGovernment
may, after due appropriation made by Parliament, utilise such sums of money of
the SBC for the purposes of financing and promoting Swachh Bharat
initiatives or for any otherpurpose relating thereto.

Q.6How will the SBC be calculated?

Ans. SBC would be calculated in the same way as Service tax is calculated.
Therefore, SBCwould be levied on
the same taxable value as service tax.

Q. 7 Whether SBC would be
required to be mentioned separately in invoice?

Ans. SBC would be levied, charged, collected and paid to Government
independent of servicetax. This
needs to be charged separately on the invoice, accounted for separately in the
books of account and paid separately under separate accounting code which would
be notified shortly. SBC may be charged separately after service tax as a
different line item in invoice. It can be accounted and treated similarly to
Education cesses.

Q. 8 Whether separate accounting
code will be there for Swachh Bharat Cess?

Ans. Yes, for payment of Swachh Bharat
Cess, a separate accounting code would be notifiedshortly in consultation with the Principal Chief Controller of
Accounts. These are as follows:-

Swachh
Bharat Cess

Tax

Other
Receipts

Penalties

Deduct

(Minor Head)

Collection

Refunds

0044-00-506

00441493

00441494

00441496

00441495

Q. 9 What would be effective
rate of service tax and SBC post introduction of SBC?

Q.10 Whether SBC is a ‘Cess’ on tax’ and we need
to calculate SBC @ 0.50% on the amount of service tax like we were earlier
doing for calculating Education Cess and SHE Cess?

Ans. No, SBC is not a cess on Service Tax. SBC shall
be levied @ 0.5% on the value of

taxable services.

Q. 11 Whether SBC is levied on
all or selected services?

Ans. The Central Government was empowered to impose SBC either on all or some
of thetaxable services. Vide
notification No 22/2015-ST dated 6-11-2015, Government has notified that SBC shall be applicable on all taxable services except services
which are either fully exempt from service tax under any notification issued
under section 93(1) of the Finance Act, 1994 or are otherwise not leviable to
service tax under section 66B of the Finance Act, 1994.

Q.12How will
the SBC be calculated for services under reverse charge mechanism?

Ans. In case of reverse charge under section 68(2) of the Finance Act,
1994, the liability hasbeen shifted
from service provider to the service recipient. As per section 119 (5) of the
Finance Act, 2015, the provisions of Chapter V of the Finance Act, 1994, and
the rules made thereunder are applicable to SBC also. Thus, the reverse charge
under section 68(2) of the Finance Act, 1994, is made applicable to SBC. In
this context, to clarify, Government has issued notification No.
24/2015-Service Tax dated 12th November, 2015 to provide that reverse charge under notification
No.30/2012-Service Tax dated 20th June, 2012 shall be applicable for the purpose of levy of Swachh Bharat
Cess mutatis mutandis.

Q.13How will
SBC be calculated for services where abatement is allowed?

Ans. Taxable services, on which service tax is leviable on a certain percentage
of value oftaxable service, will
attract SBC on the same percentage of value as provided in the notification No.
26/2012-Service Tax, dated 20th June, 2012. So, this notification would apply for SBC also in the same
manner as it applies for service tax.

Ans. SBC isnotintegrated
in the Cenvat Credit Chain. Therefore, credit of SBC cannot beavailed. Further, SBC cannot be paid
by utilizing credit of any other duty or tax.

Q.15What
would be the point of taxation for Swachh Bharat Cess?

Ans. As regards Point of Taxation, since this levy has come for the first
time, all services (exceptthose
services which are in the Negative List or are wholly exempt from service tax)
are being subjected to SBC for the first time. SBC, therefore, is a new levy,
which was not in existence earlier. Hence, rule 5 of the Point of Taxation
Rules would be applicable in this case. Therefore, in cases where payment has
been received and invoice is raised before the service becomes taxable, i.e.
prior to 15th November, 2015, there is no lability of Swachh Bharat Cess. In cases where payment has been received before the service became taxable and
invoice is raised within 14 days, i.e. upto 29th November, 2015, even then the
service tax liability does not arise. Swachh Bharat Cess will be payable on
services which are provided on or after 15th Nov, 2015, invoice in respect of which is issued on or after that date
and payment is also received on or after that date. Swachh Bharat Cess will
also be payable where service is provided on or after 15th Nov, 2015 but payment is
received prior to that date and invoice in respect of such service is not
issued by 29th Nov, 2015.

Q.16 How would the tax (Service
Tax and SBC) be calculated on services covered under Rule 2A, 2B or 2C of
Service Tax (Determination of Value) Rules, 2006.?

Ans. The tax (Service Tax and SBC) on services covered by Rule 2A, 2B or 2C
of Service Tax(Determination of
Value) Rules, 2006, would be computed by multiplying the value determined in
accordance with these respective rules with [14% + 0.5%]. Therefore, effective
rate of Service Tax plus SBC in case of original works and other than original
works under the works contract service would be 5.8% [(14% + 0.5%)*40%] and
10.15% [(14% + 0.5%)*70%] respectively. Similar, would be the tax treatment for
restaurant and outdoor catering services.

Q.17 How would the tax be
calculated on restaurant services covered under Service Tax (Determination of
Value) Rules, 2006.?

Ans. Swachh Bharat Cess would be calculated on the value arrived at in
accordance with theService Tax
(Determination of Value) Rules, 2006. For example, the effective Swachh Bharat
Cess in respect of services provided in relation to serving of food or
beverages by a restaurant, eating joint or a mess, having the facility of air–conditioning
or central air-heating in any part of the establishment, would be 0.5% of 40%
of the total amount, i.e, 0.2% of the total amount. The cumulative service tax
and Swachh Bharat Cess liability would be [14% ST + 0.5% SBC] of 40% of the
total amount, i.e., 5.8% of the total amount charged.

Q.18 Whether SBC would be
applicable on services covered by Rule 6 of Service Tax Rules (i.e. air travel
agent, life insurance premium, purchase and sale of foreign currency and
services by lottery distributors/selling agents)

Ans. Sub-rule (7D) to rule 6 has been inserted vide notification
25/2015-Service Tax, dated12th November, 2015 so as to provide
that the person liable for paying the service tax under sub-rule (7),
(7A), (7B) or (7C) of rule 6 of Service Tax Rules, shall have the option to pay
SBC as

The option under this sub-rule
once exercised, shall apply uniformly in respect of such services

and shall not be changed during a
financial year under any circumstances.

Q. 19 How
would liability be determined in case of reverse charge services where services
have been received prior to 15.11.2015 but consideration paid post 15.11.2015?

Ans. In respect of reverse charge mechanism, SBC liability is determined in
accordance withRule 7 of Point of
Taxation Rules, as per which, point of taxation is the date on which
consideration is paid to the service provider. Thus, SBC liability in such case
will be 0.5% X Value of taxable service.

Q.20 Does a person providing both
exempted and taxable service and reversing credit @ 7% of value of exempted
service under Rule 6 of Cenvat Credit Rules, does he need to reverse the SBC
also?

Ans. As SBC is not integrated in the Cenvat Credit chain and reversal under
Rule 6 is paymentof amount equal to
7% of the value of exempted services, hence, reversal of SBC is not required
under Rule 6 of Cenvat Credit Rules, 2004.